11/06/1436

Business Ethics and Social

Responsibility

Lecture Four

Business Ethics
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 Ethics is ...
the study of moral obligation, or separating right from wrong
in the context of everyday life, organizational behaviors,
and even how society operates and is governed

 customers and suppliers always prefer to deal with

ethical companies

 Note that ... Not all unethical acts are illegal.

 Example of a legal, yet unethical, practice is ... hiring an
employee away from a competitor.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Philosophical principles
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When attempting to decide what is right and wrong,

managers should focus on
(1) consequence;
(2) duties, obligations, and principles; or
(3) Integrity.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Philosophical principles ... Consequences

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Focus on Consequence
 The decision maker is concerned with the utility of the decision.
 The net balance of good consequences over bad consequences .
 Thus, the decision maker would have to be aware of all the good and bad
consequences of a given decision.
 Criterion ... if no one gets hurt, the decision is ethical.
 Example: An automotive body shop manager might decide that using low-
quality replacement parts is ethically wrong because these parts will rust
quickly.
 Consequences such as; how angry customers would be whose cars were repaired
with inferior parts, and how much negative publicity would result; should be
considered.
Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Philosophical principles ... duties,

obligations, and principles
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Focus on duties, obligations, and principles

 Ethical action arises from doing one’s duty and that duties are defined by rational
thought.
 This should be based on universal principles such as honesty, fairness, justice, respect
for persons and property, and the rights for privacy and safety.
 These principles are more important than the consequences.

 Criterion ... If a given decision violates one of these universal principles, it is

automatically unethical even if nobody gets hurt.
 Example: The automotive body shop manager might decide that using low-quality
replacement parts is ethically wrong because these parts are not authorized by the
automobile manufacturer.
 Whether or not these parts rust quickly is a secondary consideration.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Philosophical principles ... Integrity

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Focus on Integrity (Virtue Ethics )

 This approach focuses on the character of the person involved in the
decision or action.
 If the person has good character, and genuine motivation and intentions, he or
she is behaving ethically.
 The ingredients making up character will often include the two other ethical
criteria.
 One might judge a person to have good character if she or he follows the right
principles and respects the rights of others.
 The decision maker’s environment, or community, helps define what integrity
means.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Values and Ethics

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 Values ... clear statements of what is critically important.

Values are deeply held beliefs that form the very core of who
we are.
 Ethics ... the vehicle for converting values into actions, or
doing the right thing.
 A person’s values influence which kind of behaviors he or she
believes are ethical.
 The right values can lead to a competitive advantage.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Contributing factors to ethical problems

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 An individual’s desire to maximize self-gain at the expense of others.

 An organizational atmosphere that excuses such behavior.
 Even employees with high ethical standards may stray in a climate that rewards
unethical behavior.
 It is the firm’s top executives who set the company’s moral tone.
 Moral laxity (carelessness) ... a slippage in moral behavior because other issues
seem more important at the time.
 The businessperson who behaves unethically has not carefully planned the
immoral behavior but lets it occur by not exercising good judgment.
 The strength of relationships among people.
 Example: The owner of a service center is more likely to behave unethically toward a
stranger than a long-term customer.
Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Social Responsibility

Social Responsibility
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 Social Responsibility is ...

the idea that firms have obligations to society beyond their
economic obligations to owners or stockholders and also
beyond those prescribed by law or contract.

Business Ethics Social Responsibility

 a narrower concept that  a broader concept that relates
applies to the morality of an to an organization’s impact on
individual’s decisions and society, beyond doing what is
behaviors. ethical.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Social Responsibility
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 Corporate Social Consciousness ... a set of consciously held shared

values that motivate and guide individuals to act in a responsible
way.
 The interests of the corporation are balanced against its
accountability for the effect of its actions upon society, the
environment, and other interested parties.
 A company with a strong corporate social consciousness would ...
 be profitable,
 pay high wages,
 attract high-quality job candidates, and
 be admired by the general public and the government.
Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Stockholder Vs. Stakeholder viewpoint

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Stockholder viewpoint Stakeholder viewpoint

 Business firms are responsible  Firms are responsible for the quality of life
only to their owners and of the many groups affected by its actions.
stockholders.
 The job of managers is to
satisfy the financial interests of
the stockholders.
 The interests of society will be
served in the long run.
 Corporate social responsibility
is a by-product of profit
seeking.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Social Responsibility
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 Corporate social performance ... the extent to which a firm responds

to the demands of its stakeholders for behaving in a socially
responsible manner.
 Stakeholders may give their attention to the behavior of the
corporation as a good citizen in the community.
 For measuring social performance ...
 analyze the company’s annual report in search of relevant
information such as; Pollution measures, Contribution to the homeless,
Contributions to the arts, Contributions to education ... etc.
 observe how a company responds to social issues by examining
programs in more detail.
Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Social Responsibility ... Initiatives

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Environmental Management
 Preserve the natural environment.
 The company works in partnership with a group intent on such purposes as
preserving forests or a species of fish or animal.
 Prevent pollution rather than control wastes after they have surfaced.
Work/Life Programs (work/family programs)
 Facilitate employees balancing the demands of work and personal life to be
more satisfied and productive on the job.
 Childcare and medical care
 Part-time options
 Flexible work schedules

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Social Responsibility ... Initiatives

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Social Leaves of Absence

 Gives selected employees time away from the job to perform a significant
public service.
 Paid
 from several weeks up to six months

 Candidates fill out an application that describes the employee’s plans and
qualifications for performing the community work.
Community Redevelopment Projects
 A large-scale social responsibility initiative.
 Firms invest resources in helping rebuild distressed communities. Such as ...
 Constructing buildings or factories in a poor section of town.
 Offering job training for residents from these areas.
Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Social responsibility ... Financial Performance

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 High ethics and social responsibility are related to

good financial performance.
 More profitable firms can invest in social responsibility
initiatives, and these initiatives in turn lead to more profits.
 Unethical behavior that is discovered and publicized has a
negative impact on the stock price for an appreciable period
of time. Unethical behavior, therefore, decreases a firm’s
wealth.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Ethical & Socially responsible ... workplace

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Initiatives for creating an ethical and socially responsible workplace

include ...
 Formal mechanisms for monitoring ethics
 Ethics hotline for reporting possible legal and ethical violations.
 Ethics committees to help ensure ethical and socially responsible behavior
through establishing policies, conducting ethical audits of the firm’s activities and
reviewing complaints about ethical violations.

 Widespread communication
 Top management can speak widely about the competitive advantage of being
ethical and socially responsible.
 Discussion of ethical and social responsibility issues during teams meetings.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Ethical & Socially responsible ... workplace

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Initiatives for creating an ethical and socially responsible workplace

include ...
 Written codes of conduct
 Guidelines for ethical and socially responsible behavior.

 Leadership by example
 A high-powered approach to enhancing ethics and social responsibility is for
members of top management to behave in such a manner themselves.

 Training programs
 Forms of training include classes on ethics at colleges, and/or exercises in ethics.
 These training programs reinforce the idea that ethically and socially
responsible behavior is both morally right and good for business.
Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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Social responsibility ... Components

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 Economic responsibility
 Corporations should provide goods and services that society wants at
reasonable prices.
 Corporations have to make profits.
 Corporations need to pay their employees and increase value for their
shareholders.

 Legal responsibility
 Corporations are expected to work within the framework of laws and
regulations as a partial fulfillment of the "social contract" between
corporations and society.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

Social responsibility ... Components

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 Ethical responsibility
 Activities and practices expected or prohibited by society that expand
beyond the limitations of legal responsibilities.

 Philanthropic responsibility
 Actions in response to society's expectations of good corporate citizens.
 Corporate philanthropy enhances the image of corporations and
employee loyalty.
 Business contributions in terms of financial resources or executive time,
such as contributions to the arts, education, or communities.

Prepared by … Dr. Magdy A. Khalaf PQI - AASTMT

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